Budget 2021 - Commentary from Momentum Investments

Highlights________________________________________________________________________________________

The national treasury’s expected economic growth rate of 3,3% for 2021 is realistic and in accordance with our expectation of 3,2%.
A consolidated budget revenue overrun of almost R100 billion compared to the Medium Term Budget Policy Statement (MTBPS) for 2020/21 assisted to reduce the budget deficit to 14% of gross domestic product (GDP) compared to the estimate of the MTBPS of 15,7%. This had a knock-on effect, reducing the expected deficit over the forecast period up to 2023/24.
If treasury’s forecasts prove to be correct and government can stick to treasury’s plans, it will reduce the government’s debt burden significantly. The MTBPS estimate was for gross debt to GDP to reach a peak at 95,3% in 2025/26. The new estimate is 88,9% in 2025/26.
Enough money was set aside to vaccinate 67% of the population against COVID-19 in the next 12 months. Some R19,3 billion is available for vaccination in 2020, 2021 and 2022.
Household consumption expenditure will gain from personal income tax bracket creep relief.
A one percentage point reduction in the corporate tax rate (to 27%) from 1 April 2022 should provide some reprieve to company profits.
A contractionary budget amid fiscal consolidation favours fixed income assets over SA Inc equities. Another positive for the government debt market is the R128,6 billion reduction in the borrowing requirement and hence debt issuance in the medium term, partly also by using the higher accumulated cash balances (due to the revenue overruns relative to the October MTBPS expectations for this).